Malison v. Prudential-Bache Securities, Inc., C-C-86-459-P.

• Decision Date: 12 February 1987
• Docket Number: No. C-C-86-459-P.,C-C-86-459-P.
• Court: U.S. District Court — Western District of North Carolina
• Parties: Kelly J. MALISON, Plaintiff, v. PRUDENTIAL-BACHE SECURITIES, INC., Defendant.

654 F. Supp. 101

Kelly J. MALISON, Plaintiff, v. PRUDENTIAL-BACHE SECURITIES, INC., Defendant.

No. C-C-86-459-P.

United States District Court, W.D. North Carolina, Charlotte Division.

February 12, 1987.

William J. Waggoner, Waggoner, Hamrick, Hasty, Monteith, Kratt, Cobb & McDonnell, Charlotte, N.C., for plaintiff.

David C. Wright, III, Robinson, Bradshaw & Hinson, Charlotte, N.C., for defendant.

ORDER

ROBERT D. POTTER, Chief Judge.

THIS MATTER is before the Court upon Motion of Defendant Prudential-Bache Securities, Inc. ("Bache") to compel arbitration. The Court heard arguments of counsel on Friday, January 30, 1987, in Charlotte, North Carolina. Bache was represented by Attorneys John Wester and David Wright. Plaintiff Kelly J. Malison ("Malison") was represented by Attorney William Waggoner.

Bache seeks to compel arbitration of this action before the New York Stock Exchange pursuant to 9 U.S.C. § 4, and to stay the action pending such arbitration pursuant to 9 U.S.C. § 3.

Malison began working for Bache on July 18, 1983 as an account executive trainee. Bache paid Malison during his training period and incurred a substantial expense for that training. On September 16, 1983, Malison signed an Account Executive Trainee Agreement which provides that if Malison leaves Bache within one year of employment, he must reimburse Bache in the amount of $16,000 for its expense in training him.

On July 18, 1983, Malison signed and executed a Uniform Application for Securities Industry Registration ("U-4") with the New York and American Stock Exchanges. The U-4 was signed by the appropriate inspector on August 8, 1983 and stamped "received" on September 12, 1983. That application provides that the applicant agrees "to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organization with which I register."

After working 10 months with Bache, Malison left and began working for Paine-Webber. Bache commenced arbitration proceedings on May 8, 1986 with the New York Stock Exchange to recover the $16,000 agreed upon reimbursement fee. On the eve of the arbitration proceedings, Malison filed a complaint in state court seeking to have the agreements declared void and illegal. Malison obtained a temporary restraining order from the state court prohibiting Bache from proceeding with arbitration. Bache subsequently removed the action to this Court.

Federal policy highly favors arbitration as a viable, expedient and economic alternative to litigation and where a controversy arises over whether to arbitrate, doubt should be resolved in favor of arbitration. Galt v. Libbey-Owens-Ford Glass Co., 376 F.2d 711 (7th Cir.1967).

If any party to the arbitration clause attempts to invalidate the clause, the Court must determine the validity of the provision. Once the district court determines that the making of an agreement to arbitrate is not in issue, it "shall make an order directing the parties to arbitration in accordance with the agreement." 9 U.S.C. § 4. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 400, 87 S.Ct. 1801, 1804, 18 L.Ed.2d 1270 (1967); Conticommodity Services, Inc. v. Philipp & Lion, 613 F.2d 1222 (2d Cir.1980) (before compelling arbitration court must be satisfied under § 4 that making of the arbitration agreement or refusal to comply therewith is not in dispute). It is not for the Court to consider the merits of the underlying controversy, but only whether the issue is one which the parties have agreed to arbitrate Prima Paint Corp., supra, 388 U.S. at 402, 87 S.Ct. at 1805.

Malison executed the U-4 registration application which contained the following provision:

"I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the organizations with which I register, as indicated in question 8."

Rule 347 of the New York Stock Exchange and Article VIII § 1 of its Constitution both provide for arbitration of disputes between members of the Exchange at the instance of either party.

Rule 347 of the New York Stock Exchange provides:

Any controversy between a registered representative and any member or member organization arising out of the employment or termination of employment of such registered representative by and with such member or member organization shall be settled by arbitration, at the instance of any such party, in accordance with the arbitration procedure described elsewhere in these rules.

In addition, Article VIII § 1 of the New York Stock Exchange Constitution provides:

Any controversy between parties who are members, allied members, member firms or member corporations ... arising out of the business of such member, allied member, member firm or member corporation shall at the instance of any such party, be submitted for arbitration, in accordance with the provisions of the Constitution and the Rules of the Board of Directors.

Malison's contentions that the Federal Arbitration Act does not apply to this case are without merit. The Federal Arbitration Act applies to "a written arbitration provision in ... a contract evidencing a transaction involving commerce." 9 U.S.C. § 2. It has been held that a "contract between a New York Stock Exchange brokerage firm and its employees is a contract involving commerce governed by the federal Arbitration Act." Roodveldt v. Merrill Lynch, Pierce, 585 F.Supp. 770, 779 (E.D.Pa.1984); see also, Dickstein v. DuPont, 443 F.2d 783 (1st Cir.1971).

The North Carolina Arbitration Act does not override the Federal Act as Malison suggests. The Federal Act overrides conflicting state law when any form of interstate commerce exists. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). Malison relies on Merrill Lynch, Pierce v. Ware, 414 U.S. 117, 94 S.Ct. 383, 38 L.Ed.2d 348 (1973), in which the Court held that broker employees had the right to pursue their wage claims in the California State Court and were not required to submit to arbitration under the rules of the NYSE. That case, however, did not involve the Federal Arbitration Act and its relation to state laws.

Other cases which have dealt with the relation of the Federal Arbitration Act to state law hold that federal law controls. Johnson Controls, Inc. v. City of Cedar Rapids, Iowa, 713 F.2d 370, 376 (8th Cir. 1983) ("federal substantive law preempts state law governing the enforceability of arbitration agreements in interstate contracts."); In re Mercury, 656 F.2d 933 (4th Cir.), aff'd., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (198...